Arbitration and effective consumer protection: a field of tension

The judgment of the EU Court of Justice (Grand Chamber) of 6 March 2018 in Slovak Republic v Achmea (C-284/16), a case concerning investor-state arbitration under a bilateral investment treaty (BIT), has raised a dust. The CJEU found that arbitration clauses common to almost 200 BITs between EU Member State violate EU law. The judgment is likely to have far-reaching consequences for intra-EU investment arbitration; it has even been called a "death sentence" for autonomous arbitral tribunals.

For consumer lawyers, the CJEU's findings as regards the relation between arbitral tribunals and State courts will be of special interest. A recurring issue in the context of unfair terms control is whether and to what extent judicial review of arbitral awards - in particular the arbitration clause on which they are based - is still required. Mostaza Claro and Asturcom are two well-known cases in this respect. They both pertain to the scope of the national court's power / obligation to assess of its own motion (i.e. ex officio) the unfairness of the arbitration clause, either in annulment proceedings or at the enforcement stage. Judicial review and ex officio control play a key role in the effective protection of consumers under Directive 93/13.

Source: 24x7newscast.com

In the Netherlands, the discussion about arbitration in consumer cases has recently resurfaced. The modus operandi of e-Court, an online platform offering digital dispute resolution, appeared to be contrary to EU (consumer) law.[*] First, the independence of e-Court was questionable: its main clients were health insurance companies who brought claims against consumer-debtors on a large scale. Secondly, consumers were not given a realistic choice between arbitration or litigation before a State court. Thirdly, the procedure was so short that consumers hardly had any time to defend themselves. Fourthly, undefended claims were automatically awarded by an algorithm (a 'robo-judge'). This 'robo-judge' did not seem to exercise unfair terms control. Fifthly, judicial review of e-Court's awards turned out to be limited, which could be problematic in light of the case law of the CJEU.

The example of e-Court shows tension between the 'efficiency' of alternative (out-of-court) dispute settlement and the effective (judicial) protection of consumers. In Achmea, the CJEU emphasised the importance of State courts in ensuring the full application of EU law and the judicial protection of the EU rights (and freedoms) of individuals. Insofar as an arbitral tribunal may be called on to interpret or to apply EU law, while it is not a court or tribunal of a Member State and thus not part of the judicial system, its awards must be subject to judicial review in order to ensure that questions of EU law which the tribunal may have to address can be submitted to the CJEU for a preliminary ruling. The CJEU also recalled that requirements of efficient arbitration proceedings may justify the judicial review of arbitral awards being limited in scope, provided that the fundamental provisions of EU law can be examined in the course of that review. The right to an effective remedy before a court of law (Article 47 of the EU Charter of Fundamental Rights), which includes the right of access to court, is such a provision.

Achmea may not be a "death sentence" for commercial arbitration in general, but as far as the application of EU law is concerned State courts - and, through preliminary references, the CJEU - have the final say. This could have implications for the assessment of arbitration clauses in consumer contracts as well.


[*] For our Dutch readers, click here for more background information. A debate about the 'robo-judge' of e-Court is organised at the University of Amsterdam on 22 March 2018 (programme in Dutch). 

European consumers are a step closer to resolving their disputes online

In 2013 the Commission adopted the ADR Directive and the ODR Regulation. These acts aimed at creating opportunities for European consumer to resolve their disputes out-of-court in a simple, fast and low cost manner, covering online and offline, domestic and cross-border disputes (see our summaries here). Online out-of-court dispute resolution is made possible by the ODR Regulation that foresees the establishment of the EU-wide online platform. The platform is to help consumers solve their disputes online that arise from online sales or service contracts by directing the dispute to the appropriate national ADR entity (established base on and/or complying with the requirements of the ADR Directive in Member States) and providing additional services such as translation. The ADR entities should already be in place (the latest from the 9 July 2015), and the ODR platform is to become operational on 9 January 2016. In order to ensure uniform conditions for the implementation of the ODR Regulation, the Commission has recently adopted an implementing act. The Commission Implementing Regulation 2015/1015 sets out the modalities for: 1) the electronic complaint form, 2) the exercise of the functions of the ODR platform and 3) the cooperation between the ODR contact points in Member States. With this act European consumers came a step closer to resolving their disputes online.

Impact of the new ADR and ODR rules

Today the ECC-NET holds its annual conference in Dublin during which the impact and the implementation of the forthcoming ADR and ODR legislation will be discussed. (ECC-Net annual conference: EU consumers could save 22.5 billion euro) The Irish European Consumer Centre commissioned a report "The Implication of the Proposed ADR Directive for the Resolution of Consumer Disputes in Ireland" which is available online on their website.

"According to recent research, losses experienced by cross-border shoppers are estimated at EUR 425 million per annum. The European Commission has estimated that if EU consumers can rely on well-functioning and transparent ADR for their disputes, both national and cross-border, they could save around €22.5 billion a year, corresponding to 0.19% of EU GDP. The ADR Directive and ODR Regulation when implemented will allow business to consumer disputes to be settled fast, effectively and cheaply without going to court. Effective ADR offers both business and consumers a win-win situation encouraging consumers to spend secure in the knowledge that if something goes wrong it is easy for them to access redress while business will avoid the costs of going to court". said Dr. Ann Neville (Director of ECC Ireland)

Towards faster redress for disappointed shoppers?

Today, negotiators from the European Parliament and the Council found a deal on two prospective pieces of legislation: a Alternative Dispute Resolution directive and and a regulation on  Online Dispute Resolution .

The underlying goal is to provide "impartial mediation to settle disputes between shoppers and traders quickly, effectively and at low cost."

Admittedly, similar mechanisms are already available in many member states, but their effectiveness is hampered by lack of awareness and perfectible infrastructure. 

The harmonised ADR mechanisms should be

• available for all economic sectors;
• provided free of charge or only "at a nominal cost";
• capable of generally resolving issues within 90 days.

In order to raise awareness, traders will have to inform consumers of which ADR bodies they are covered by and how to contact them. Measures must be taken in order to ensure that the arbitrators act impartially. 

A specific regulation will be issued concerning problems arising out of online sales. In this case, an online platform will be accessible through the"Your Europe" Portal to guide shoppers to the most appropriate resolution scheme for their dispute. All steps of the complaints will be dealt with online through a standard complaint form and electronic translation.
The application of EU privacy and data protection rules should make sure that the information concerned is processed correctly. 

What now? The acts will have to be officially endorsed by both organs in the coming months, starting with the Parliament where the texts should be put to plenary  vote early in 2013.

Fate of the European ADR and ODR schemes to be decided after summer

Last winter the European Commission presented proposals of new laws that would improve consumers' rights in settling disputes out of courts. (A step away from out-of-court dispute resolution for European consumers) This post is just a quick update to let the readers know that these laws have still not been finalised but the works on them continue. A week ago the European Parliament's internal market committee adopted amendments to two draft laws on alternative and online dispute resolution schemes (ADR and ODR). MEPs proposed, e.g., an introduction of a quality label for ADR entities, with which they could show that they comply with the minimum quality standards set in the directive. MEPs introduced also certain provisions in order to strengthen impartiality of the ADR arbitrators or mediators. The next step is in the legislation procedure is to start negotiations with the Council on a possible first-reading of the two proposals. Whether the texts are ready for that will be decided after the summer break. (Easy, cheap and rapid redress for consumers)

Why not more serious?

Yesterday I have mentioned that the EESC is soon expected to give four opinions related to consumer protection measures (Expecting opinions of the EESC). Today a press released was issued in which the EESC calls on the European institutions to take consumer rights more seriously (The EU should take consumer rights more seriously, says the EESC). After having voted on the newly drafted provisions on alternative dispute resolution (ADR) and online dispute resolution (ODR), the EESC expressed its concern as to the setup and functionalities of the planned ODR platform. The criticism addressed the narrow scope of the platform, limits as to its practical usability, technical innovation and legal certainty. Moreover, the EESC believes that the European regulation should be more ambitious and broader in scope. They advocate for an ODR platform that would be available for all types of transactions, regardless of whether they are concluded online or offline, cross-border or inside one country only. Also the Consumer Programme 2014-2020 was criticised, since it does not provide for a sufficient budget to place consumers at the centre of EU policies.

ADR and ODR explained

Recently, we posted about the intended changes in the European regulations on alternative dispute resolution as well as out-of-court dispute resolution (A step away from out-of-court dispute resolution for European consumers). As you may imagine this change has been widely debated in various news. If you are interested in reading more about it, I recommend you the following:

Darin Thompson's blog entry "Online Dispute Resolution Expansion in the EU" within SCL - The IT Law Community

Rafal Morek's blog entry "ADR and ODR for EU consumers: Proposals for new Directive and Regulation" on Kluwer Mediation Blog

A step away from out-of-court dispute resolution for European consumers

Also on the 29th November (that was one busy day), the European Commission proposed two new legislative products on alternative dispute resolution, according to the schedule for 2011 that was announced at the beginning of this year (see previous post "Who needs courts?..."). These two proposals are to enable European consumers to solve their problems with traders without going to court, regardless of the kind of product or service that the contractual dispute is about and regardless whether they bought it in their home country or in another Member State (cross-border transactions). It has been estimated that if a universal, of good quality alternative dispute resolution (ADR) system (which means that dispute is solved by a neutral party, e.g. arbitrator, mediator or ombudsman) is introduced across the EU it could save consumers ca 22,5 billion EUR a year. European Commission focuses also on protection of consumers shopping online, planning to create an EU-wide single online platform, which will allow to solve contractual disputes online within 30 days.

Among the newly adopted proposals there is the Directive on consumer Alternative Dispute Resolution (ADR) and the Regulation on consumer Online Dispute Resolution (ODR). The Directive aims at creating out-of-court entities that would solve any contractual disputes in B2C relations. These ADR entities would have to be well-qualified, transparent, impartial, effective and fair. It would be an obligation of the trader to inform the consumer about the ADR entity which could deal with a potential contractual dispute. ADR entities are to resolve the disputes within 90 days. The Regulation, on the other hand, would focus on enabling resolving online disputes between consumers and traders located in different Member States and would create an online platform (ODR). The system is to send consumers' complaints automatically to the competent national ADR entity and it's supposed to resolve the dispute within 30 days.

Q&A on the proposals may be found here.

For information purposes only

As previously mentioned on this blog (Who needs courts? EC: let's settle consumer disputes out of them), the European Commission pays more attention nowadays to finding out what options of redress consumers have. As we all, as consumers, know, at the moment these options differ from country to country and both: collective redress and alternative dispute resolution is still seen as something controversial and risky. Hopefully, the public consultation that is to be finalized mid March will result in creating a coherent, European system of ADRs. Until that time, it might be handy to know that on EC website you can check what is the state of play on consumer redress (ADR, court proceedings for small claims, injunctions, compensatory collective redress) in various Member States. DG SANCO prepared fiches on each and every Member State and fortunately they have been made public since it makes it easier to compare various legal systems and spot differences in consumer protection. You may find this overview here.

Who needs courts? EC: let's settle consumer disputes out of them.

European Commission made an announcement today on the launch of public consultation on alternative dispute resolution schemes (ADR) for consumers.

ADR are nothing new (more information on ADR in European Union may be found here). There are over 750 of them in various Member States. However, there is no harmonisation as to this alternative to courts that consumers may use to solve their disputes with professional parties. ADR is supposed to be advantageous to consumers due to its speed and low costs of participation. Certain directives already mention these schemes (e.g. E-Commerce Directive) and European Commission was already recommending the use of ADR for cross-border disputes. You might think that there is no need for European Commission beginning a public consultation on ADR then. However, the fact that the need for and advantages of the ADR had been recognized in past years does not mean that the state of the art as far as they are concerned is satisfactory. The public consultation that is being launched now is suppose to address certain problems with ADR: the territorial scope of their activity (certain Member States have more possibilities open to consumers to use ADR than others), the sector-specific activity of ADR (certain sectors do not recognize the possibility to solve the disputes via ADR at this moment), the recognition of ADR (the idea is to encourage both consumers and professional parties to use the ADR system). The European Commission's public consultation will remain open until 15th of March 2011 (more information on taking part in it may be found here) . The legislative proposal is expected for November 2011.

European Consumer Centres, happy birthday!

It has been five years now that European Consumer Centres exist that are 'at the service of European consumers'. Whether a problem occurs with goods bought online, holidays are ruined because of cancelled flights, or other consumer problems: the ECC is there to help. 29 Centres exist, one in each of the Member States plus one in Iceland and one in Norway.

To get an idea of the activities undertaken and services offered by the ECC, here you can find the report published at the 5-year anniversary.

Cross-border dispute resolution

Denmark, Poland, Italy and UK prepared together a report (published in December 2009) about a use of various mechanisms of cross-border dispute resolution within EU.

Cross-border trade within the EU is growing and there is a general consensus that this is a positive development since it means a wider choice of products and services as well as lower prices for consumers. But as cross-border trade is growing so are cross-border complaints.

If consumers are to have trust in cross-border trade they need to know that it is safe to shop in other EU-countries. And different remedies are already in place to help consumers solve their cross-border complaints, one of these being the European Consumer Centres Network (The ECC-Network).

The ECC-Network is an EU-wide network consisting of 29 centres, one in each EU member state together with a centre in both Iceland and Norway. The Network is co-financed by the Health and Consumer Protection Directorate General of the European Commission and by the member states. The main aim of the ECC-Network is to create consumer confidence in the Internal Market and assisting consumers with cross-border complaints is one of the key objectives of the network.

Since 2007 the ECC-Network has systematically been registering complaints received in an online case handling system and data shows that the number of complaints has grown from 5,000 in 2007 to 6,500 in 2008 to estimated 8,000 in 2009. In other words an increase in the number of complaints of 60 % from 2007 to 2009.

With this network report we want to have a look at how likely consumers are to have their cross-border complaints solved today and which role alternative dispute resolution mechanisms (ADR) play in this. ADR we define as complaint handling mechanisms dealing with consumer complaints without involving the traditional court system.